The Fed, the FDIC and the OCC have issued a release seeking additional comment on proposed modifications to the agencies’ market risk capital rules for banks with significant trading activities. This release amends a December 2010 proposal, and includes alternative standards of creditworthiness to be used in place of credit ratings to determine the capital requirements for certain debt and securitization positions covered by the market risk capital rules.
Section 939A of the Dodd-Frank Act requires all US federal agencies to remove references to credit rating agencies from their regulations and replace reliance on the credit rating agencies with alternatives to assessing creditworthiness. This latest release proposes alternative creditworthiness standards including the use of country risk classifications published by the Organization for Economic Cooperation and Development for sovereign positions, company-specific financial information and stock market volatility for corporate debt positions, and a supervisory formula for securitization positions.
The Agencies believe that aligning the methods for assessing creditworthiness in the US with those used internationally will reduce the risk of regulatory arbitrage in the future.
While this NPR is concerned with the market risk capital rules, the agencies believe that it is important to align the methodologies for calculating specific riskweighting factors for debt positions and securitization positions in the market risk capital rules with methodologies for assigning risk weights under the agencies’ other capital rules. Such alignment would reduce the potential for regulatory arbitrage between rules. Accordingly, the agencies intend to propose, at a later date, to revise their general riskbased capital rules by incorporating creditworthiness standards for debt and securitization positions similar to the standards included in this proposal.
Comments on this proposal are due to the Agencies by February 3, 2012.